Friday Watch

Evening Headlines 

Bloomberg:

• China Stocks Head for Worst Weekly Loss in Four Years After Data. China’s stocks fell in Hong Kong, extending the worst weekly loss in four years, after lower-than-forecast manufacturing data added to concern the economic slowdown is deepening. The Hang Seng China Enterprises Index lost 2 percent to 10,194.78 at 9:50 a.m. in Hong Kong, extending this week’s slump to 7.9 percent. The Shanghai Composite Index dropped 1.2 percent to 3,621.12. The gauge has tumbled 8.6 percent this week, poised to close below its 200-day moving average for the first time in a year. A private gauge of Chinese manufacturing unexpectedly fell to the lowest level in more than six years. Caixin Media and Markit Economics’s preliminary manufacturing index for August was at 47.1, the lowest since March 2009, compared with the 48.2 estimate in a Bloomberg survey of analysts. A number less than 50 signals a contraction. “The economy continues to be in the downward trend and it’s not likely to pick up soon as there’s no clear driver for growth,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “The stock market may drop further to seek a lower support and short-term sentiment is pretty weak.”

• Xi Said to Put Population Over Growth in China’s Economic Plan. Facing a demographic time bomb that threatens China’s economic rise, President Xi Jinping is considering shifting his priority to population growth, according to a person familiar with the discussions. Xi’s economic planners may for the first time emphasize “population policies” over gross domestic product in the country’s next development blueprint, said the person, who asked not to be identified because the talks are private. The focus sets the stage for a host of rule changes regarding health, pensions, social welfare and possibly lifting the caps on children some families can have, the person said. 

• China Chipmakers Plague Intel(INTC), Qualcomm(QCOM) in ARM-Aided Share Grab. Two Chinese companies scarcely known outside their home country have amassed almost one-third of the market for tablet chips in less than a half-decade -- creating headaches for top semiconductor makers led by Intel Corp. Rockchip Electronics Co. and Allwinner Technology Co. increased sales from a combined 0.3 percent of the market for tablet computer processors in 2010 to more than 27 percent just three years later. Their Asian predecessors such as Taiwan Semiconductor Manufacturing Co. and Samsung Electronics, took decades to develop the expertise and scale to make an impact. These Chinese upstarts, by contrast, skyrocketed through the rankings by taking the kinds of risks nimbler companies can afford, and by relying on chip designs from England’s ARM Holdings Plc.

• Mexico’s Peso Leads World Losses as GDP Forecast Cut Amid Woes. Mexico’s peso led losses among global major currencies, joining a rout in emerging markets, after the nation cut its economic forecast amid a slump in oil output. The peso fell 1.1 percent at 16.8032 per dollar, the lowest close on record. It also posted the biggest decline among 16 world major currencies tracked by Bloomberg. A custom index with 20 developing-nation tenders extended its plunge over the past year to 20 percent.  

• Economists Cut Japan Growth View Again, Widening Gap With BOJ. Economists from Nomura Holdings Inc. to BNP Paribas SA lowered their forecasts for Japan’s economy this week, making the central bank’s growth outlook for this year look increasingly optimistic. The trigger -- a second-quarter contraction reported on Monday -- also led Bank of America Corp. and NLI Research Institute to trim their projections for the fiscal year through March 2016. The world’s third-biggest economy is now set to grow 1.2 percent over the 12 months, according to the median of 13 estimates from economists, less than the 1.7 percent forecast by the Bank of Japan.

• Kim Jong Un Orders North Korean Army to Be Ready for Combat. North Korean leader Kim Jong Un has ordered his troops to be fully armed and ready for combat operations, ratcheting up tensions already high after his army traded fire with South Korea across the demilitarized zone. Kim declared a “semi state of war” along the border in his order to the army and convened a meeting of the highest military body of his ruling party, North Korea’s official Korean Central News Agency said Friday.

• Euro Gains Second Week as Fed Bets Pared: Aussie Drops on China. The euro rose toward its second weekly gain against the dollar as Greece prepared for elections and traders cut bets on a U.S. interest-rate increase next month. The single currency outperformed all except two major peers this week after Greek Prime Minister Alexis Tsipras announced he will step down and call snap elections to quell a party rebellion against the conditions tied to a rescue package. The Aussie tumbled after a report indicated Chinese manufacturing will be weaker than expected this month. 

• Aussie Slides Toward Six-Year Low as Chinese Slowdown Deepens. Australia’s dollar dropped toward a six-year low as a decline in a Chinese manufacturing gauge signaled a deepening slowdown in the world’s second-largest economy. Australia’s dollar fell 0.5 percent to 72.98 U.S. cents at 11:03 a.m. in Tokyo after slumping to 72.16 on Aug. 12, the lowest since April 2009. New Zealand’s kiwi slipped 0.2 percent to 66.15 U.S. cents. 

• Indonesia Stocks Poised to Enter Bear Market as Economy Stumbles.  Indonesian stocks slid, with the benchmark index poised to enter a bear market, as capital outflows accelerate amid a weakening economy and the prospect of higher U.S. interest rates. The Jakarta Composite Index fell 1.9 percent to 4358.12 at 9:23 a.m. local time, extending its slump from an April 7 record high to more than 20 percent. The Indonesian rupiah weakened for a fifth day to its lowest level since 1998, while the yield on the government’s 10-year bonds rose to an 18-month high. Foreign investors pulled $185.4 million from Indonesian stocks on Aug. 20, the largest daily outflow since Dec. 24. Indonesia’s economy is growing at the slowest pace in six years as President Joko Widodo struggles to deliver on plans to revitalize growth. The weakest currency in 17 years is limiting scope for the central bank to cut interest rates, while tumbling commodity prices and a deepening economic slowdown in China threaten to slash export revenue.

• Asian Stocks Head for Biggest Weekly Decline Since May 2012. Asian stocks fell, with the regional benchmark index heading for its biggest weekly drop in three years, after U.S. shares succumbed to a snowballing selloff spurred by fears about the global economy. The MSCI Asia-Pacific Index slipped 1.9 percent to 131.65 as of 10:02 a.m. in Hong Kong, heading for a 4.8 percent drop this week.

• Oil Heads for Longest Weekly Losing Streak Amid Glut. (video) 

• Iron Ore in Retreat as Beijing Parade Curbs Seen Hurting Demand. Iron ore is poised for the first weekly drop in more than a month on concern that demand will ease in China as mills around the capital are ordered to curb output for a parade and after data showed global steel output contracted. Ore with 62 percent content at Qingdao is 1.6 percent lower this week after a run of five weekly advances, according to Metal Bulletin Ltd. Prices lost 1 percent to $55.84 a dry metric ton on Thursday, dropping for the fourth time in five days.

• HP(HPQ) Stumbles on Weaker PC, Corporate Demand Before Split. Hewlett-Packard Co.’s earnings outlook fell short of estimates before a breakup designed to improve growth prospects, disappointing investors looking for signs the new businesses would get a fresh start on solid ground. Sales declined across most divisions in the fiscal third quarter -- in personal computers, services, printers and software -- fueled by continued weakness in the global personal-computer market. For the fourth quarter -- the last before the separation in November -- profit before certain items will be 92 cents to 98 cents a share, Hewlett-Packard said Thursday, below analysts’ average projection for $1.

Wall Street Journal:

• Tianjin Explosion Erodes Faith in Leadership for Many in China. Blast in port city brings ill effects of China’s breakneck growth to surface. The deadly blasts that killed 114 people here also put a deep dent in the compact between China’s government and its middle class. The hundreds of millions of Chinese who have ridden the country’s breakneck growth into comfortable middle-class lives have traditionally shied away from direct challenges to the Communist Party, accepting little say in the government’s workings as long as their...

• No End in Sight for Oil Glut. Crude-price plunge is deepening, yet producers keep pumping. When oil prices started to edge down a year ago, most energy mavens thought the drop would be small and short-lived. Instead, the price of crude has plunged by almost 60% from its 2014 peak—and suddenly looks likely to stay low for months and maybe years to come. The reason: In the global battle for market share, nobody has backed down. Nobody has even blinked. Not Saudi...

• Tracing Hillary’s Secrets. A federal judge prods State and the FBI to produce her records. The federal judiciary continues to show its impatience with Hillary Clinton and the State Department she once led. On Thursday Judge Emmet Sullivan ordered State to begin coordinating with the FBI to retrieve Mrs. Clinton’s records in response to a Freedom of Information Act request from Judicial Watch.

Fox News:

• Drawing a blank: Devices from Clinton, aides wiped clean. (video) Investigations into Hillary Clinton's use of a private email server that held classified information -- as well as her inner circle's dealings -- are being hampered by revelations that their computer devices have been wiped clean or destroyed, despite the Democratic presidential candidate claiming earlier this week she doesn't know "how it works digitally at all." Clinton's lawyer David Kendall recently told a Senate committee that emails and all other data stored on her computer server were erased before the device was turned over to federal authorities.

MarketWatch.com: 

• The Dow Theory just flashed a ‘sell’ signal. (graph)

• A quarter of S&P 500, a third of Dow in bear territory.

• 5 reasons oil is sliding toward $40 a barrel.

CNBC:

• Salesforce(CRM) beats, raises full-year revenue forecast. (video) Salesforce.com reported better-than-expected quarterly revenue and profit, helped by an increase in demand for its web-based sales and marketing software, and raised its revenue forecast for the full year for the third time. Shares were up over 3 percent in extended-trading hours. 

• Markets are technical mess. (video)

Zero Hedge:

• China's "Judgment Day" Arrives - Malicious Sellers Slam Stocks Below Communist Floor. (graph)

• What Will It Take For The Fed To Panic And Bail Out The Market Once Again: BofA Explains.

• No, Credit Growth In China Is Not "Surging"... (graph)

• Gold Surges Amid Asian Sea Of Red, China Strengthens Yuan By Most In 4 Months. (graph)

• Deutsche's "Seven Signs" Flash Red-er. (graph)

• Bank Of America: "The Only Reason To Be Bullish Right Now Is There Are No Reasons To Be Bullish".

• 3 Things: Fed Stumbles, Buybacks, Stock Decline.

• Can Kickers United - Why It's Getting Downright Hazardous Out There.

• Hillary Clinton Admits Classified Information Was Stored On Home Server.

• Dow-Stockalypse-Wow: Bonds & Bullion Soar As Equities Crash. (graph)

Business Insider:

• Chinese investors are gobbling up US homes.

• HP's(HPQ) layoffs will exceed 55,000 people, CFO says.

• The rug has been pulled out from under Latin America.

• Low oil prices could break the 'fragile five' producing nations.

• The thing that made banks safer has made the market riskier.

Financial Times:

• EM rout spreads to Korea and Japan markets. The sell-off in Seoul was more pronounced as North Korean leader Kim Jong Un ordered troops to be on a war footing and declared “a semi state of war”, according to Pyongyang’s official Korean Central News Agency. An hour into the session, however, the Kospi had pared back to a 2 per cent loss.

Yonhap News:

• S. Korea Warns N. Korea of Retaliation Against Any Attack. South Korea sent fax to North Korea, saying North's shelling yesterday was violation of cease-fire agreement and it will punish any N. Korea provocation, citing Defense Ministry. Separately, South Korea sees possible North Korea provocation after 5pm tomorrow, citing Defense Minister Han Min Koo.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -2.5% to -1.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 131.75 +7.75 basis points.

• Asia Pacific Sovereign CDS Index 77.25 +2.5 basis points.

• S&P 500 futures -.44%.

• NASDAQ 100 futures -.56%.

Morning Preview Links

Earnings of Note

Company/Estimate

• (DE)/1.44

• (FL)/.69

• (HIBB)/.28

Economic Releases

9:45 am EST

• Preliminary August Markit US Manufacturing PMI is estimated at 53.8 versus 53.8 in July.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Eurozone Consumer Confidence report and the Canadian inflation report could also impact trading today.

BOTTOM LINE: Asian indices sharply lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.